THE MARRIAGE of POLITICS and ECONOMY Sao Paulo, April 2017
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A PORTRAIT OF THE BRAZILIAN MOMENT AND ITS SCENARIOS THE MARRIAGE OF POLITICS AND ECONOMY Sao Paulo, april 2017 Barcelona • Bogota • Buenos Aires • Havana • Lima • Lisbon • Madrid • Mexico City • Miami • New York City • Panama City • Quito • Rio de Janeiro • Sao Paulo Santiago • Santo Domingo • Washington, DC A PORTRAIT OF THE BRAZILIAN MOMENT AND ITS SCENARIOS: THE MARRIAGE OF POLITICS AND ECONOMY o say that this text explains the Brazil Meirelles, there are names like Ilan Goldfajn, Jorge of today would be too pretentious for Rachid and even Pedro Parente, at Petrobrás, and Maria anyone. Brazil does not fit into pages or Silvia Bastos Marques, at BNDES. With a team like that even compendia. It is not enough to read on the field, we are game ready, however difficult it may Tabout Brazil. You have to read between the lines be, even with an adverse results on the scoreboard. Let and understand that the most important messages them skin the National Congress officials. If they do not are not written anywhere. Brazil is not one of those mess up, that is already good enough. stereotypes so well known abroad, such as samba or soccer. We are hard to understand–and that’s the The challenge is not small. Brazil has already secret: with a first glance at Copacabana beach, a accumulated a 9 percent reduction in GDP over the more unaware observer may think he already knows last 33 months. That is, we have returned to the same everything he needs to know. He’s mistaken. The best base as 2010. Signs of this unprecedented recession option is to take a snapshot, a portrait of the Brazilian are found in the lives of Brazilians: unemployment, moment and its scenarios, but in 3D; developing it declining quality of life and purchasing power, and using the old ways, in a dark room bringing forth even the public safety crisis. It is with this scenario colors of understanding as the images become clearer that the economic team has coexisted in recent by the moment. months. We have hit the bottom and even dug at the pit to get lower. Let us look at the questions that come from outside the Country: What can be said about the Brazilian The Minister of Finance, Henrique Meirelles, already political world? That everyone is purposefully involved speaks of these satanic numbers as an image in a in the internationally known Operation Lava Jato, rearview mirror. Speaking with due caution and with which revealed misappropriations at Petrobrás? And no over-optimism. The economic astral has changed that everyone should be incarcerated in a prison the and every Brazilian sees this reflected in his daily life. size of Maracanã? Consumer confidence has finally resumed growth, in addition to that of the industry, when it comes to What can be said about the economic scenario? That buying raw material. Industrial production has also the crisis has taken over the Country, that we’ve lost the investment grade and that growth will be slow, Figure 1. Evolution of GDP and variation of with risks and more risks than certainties? activity by sector (in %). The answer to these questions is “no”. Let us take it -8.4% one step at a time. First, we must understand that there has been 3.6% 2.8% 3.0% an unprecedented attempt to displace all that of 2.8% 2.2% economic nature from the political. Companies and 1.0% 0.5% -3.8% -3.6% the main street economy no longer let themselves be -6.6% -1.5% -6.3% -3.8% -2.7% -2.7% guided by bad political news, which happens just as quickly as the news portals update their headlines. The economy has begun to want to ignore politics in order to survive. GDP AGRICULTURE INDUSTRY SERVICES Furthermore: as of today Brazil is experiencing a AND LIVESTOCK prodigal moment of credibility towards the economic FARMING team and the correct measures are deemed to being 2013 2014 2015 2016 taken. The team is first-rate and respected by the international market: under the command of Henrique Source: IBGE 2 A PORTRAIT OF THE BRAZILIAN MOMENT AND ITS SCENARIOS: THE MARRIAGE OF POLITICS AND ECONOMY risen. After 3 years of red numbers, in January, the have an additional advantage. They have learned from number is finally positive at 1.4 percent. Only by a little the mistakes and know how to read the economic and bit, but the curve now points upward. political weather maps. Two other positive and direct indicators are the Let us not forget that the house was a total mess growth of the packaging industry in recent weeks and even with everything starting to be put back and the increase in electricity consumption. Favorable into drawers and onto hangers, there is still a lot winds came from the inner parts of the Country with of scattered stuff. We must keep pace and practice news of a record harvest. Inflation, the worst of taxes, patience. We cannot let ourselves set the table with has finally been controlled and is at an acceptable insurmountable pessimism or deceptive optimism. level, ranging a 4.25 percent, with the prospect of We still have a long way to go and deal with the an even larger drop by the end of the year, which risk factors. Those that come from the outside: the has led to a steady decline in interest rates by the low growth of the Chinese economy, the humors of Banco Central. The dream is to reach a single digit Donald Trump and the protectionism that can come number, if only to have less shame in the international from the victory of nationalist candidates in many playground, since the Brazilian of the major countries in Europe. interest rate of a 12.25percent per In addition to the risks that come year, is still the highest in the world. The economy has from the Praça dos Três Poderes, in begun to want to Brasília, where decisions are made Economists are unanimous in in Brazil. After all,the economy assessing that we have reached the ignore politics in may want to divorce itself from turning point. The economic team order to survive politics, but such a marriage does has now a clear and well-defined not fall apart easily. policy, quite different from the one that threatened businesses. This All the positive indicators of the translates into further confidence here in Brazil, with economy will only keep up this improvement, if the Stock Exchange rising, and abroad with the timid the reforms proposed by the government pass in return of investors. Those who were here and survived Congress. And yes, when talking about Congress, we the political avalanche and the economic tidal wave are talking about conspiracies, dubious agreements, aging leaders (even if some are relatively young), and Figure 2. National price index and basic interest mainly Operation Lava Jato and the lists of Minister rate (in %). Edson Fachin of the Supreme Court (STF). This document called for the start of a police investigation % against the various crimes, such as active and passive 16 corruption of eight of the current president’s–Michel 14.00% 13.75% 13.75% 13.00% Temer–ministers, the presidents of the Chamber 14 12.25% 12 of Deputies and the Senate and three of the State 10 Governors; a total sum of over 200 state workers, 7.87% 6.99% executives and businessmen. Not mentioning the 8 6.29% 5.35% cases that must be solved during first instance 6 4.76% 4.57% proceedings, not reaching the Supreme Court of 4 Justice in Brasilia (STF), and being taken care of by the 2 juries of the Federation States–the basil level of Justice 0 in Brasil. We are talking about the imponderable, OCT - 16 NOV - 16 DIC - 16 JAN - 17 FEB - 17 MAR - 17 which could flow out on to the streets and popular or Meta Selic (Meta Special IPCA (Broad National activist demonstrations, willing to disturb the Country. Clearance and Escrow System] Consumer Price Index) Not to mention the Lula factor (ex-president between 2003 and 2010), for whom, the worse the better, always Source: IBGE e Banco Central do Brasil with an eye on the 2018 elections–Lula who still, as of today, faces prison charges. 3 A PORTRAIT OF THE BRAZILIAN MOMENT AND ITS SCENARIOS: THE MARRIAGE OF POLITICS AND ECONOMY The 28 parties, between the Chamber of Deputies and the politicians from the economic team, because in the Senate, crawl around in a true ideological jelly, or essence they are like water and oil, but life is “real and rather the vast majority without any ideology... are biased”, as Caetano Veloso sung, and the couple will more about pure physiology. Three parties dominate have to go hand in hand, if only for appearances’ sake. the scene: PMDB (center-right), PSDB (center-left) and PT (left), the three largest The first reform to be voted parties in Brazil. The PMDB is on should be the social the balance, as a partner of the security reform. Without PT, such as in the governments Inflation, the worst of taxes, it, the country will not save of former presidents Lula and itself from a tremendous Dilma Roussef, or alongside the has finally been controlled fiscal crisis. As unions, trade PSDB, as of today under the and is at an acceptable level, unions and landless/homeless government of President Michel movements mobilize for Temer. We must not forget the ranging a 4.25 percent shutdowns and protests, “rest”, smaller parties that form political analysts, for the a block eager for positions and most part, are betting on an favors in exchange for support in each important vote.